Investing in SaaS – Such stuff as dreams are made of

20 April 2018 - Sonia Powar

Investing in Software-as-a-Service ( SaaS) – Such stuff as dreams are made of

As it continues to gain exponential traction, the software-as-a-service (SaaS) model remains a highly disruptive force in the software and technology sectors, and the basis for digital transformation. According to Gartner, by 2021 more than half of the global enterprises already using cloud solutions will adopt an all-in cloud strategy. SaaS remains the largest segment of the cloud market, with revenue expected to grow by 22.2% to $73.6 billion in 2018. In fact, the company expects SaaS to reach 45% of total application software spending by 2021.

SaaS and venture debt – A marriage of true minds

Based on its non-dilutive nature and the fact that it is offered earlier and in larger amounts than bank debt, venture debt provides SaaS companies with an attractive alternative or supplement to venture capital and bank funding. It can be used as a bridge to break-even, to delay an additional round of equity fundraising and achieve the milestones that will help trigger higher valuations, or to accelerate the growth of profitable businesses. And because venture debt funding can be drawn down in tranches, providing a ‘pay as you grow’ solution much like that of the SaaS model, the cost of capital is decreased. As SaaS companies spend considerable time and resources to develop their product and acquire customers in their early stages, it can take some time for profits to become visible. This can lead to a dip in cash flow just as the company is beginning to experience rapid and significant growth. Venture debt can be used to fill this funding gap and stabilise cash flow until the business is mature enough to be self-sustainable.

Venture debt is a growth funding solution that lies at the intersection of venture capital and institutional debt. It is particularly useful for high-growth scale-ups with insufficient history, revenue and assets to be eligible for bank debt, and that wish to access capital without diluting equity. The SaaS sector is particularly attractive to venture debt lenders because the clear repeat and visible revenue is an excellent match to the profile of a loan facility that amortises in a repeatable way. Lenders prefer to lend to SaaS businesses when they are able to deliver high growth rates.

Is your SaaS business ready for venture debt – If money go before, all ways do lie open

BOOST&Co offers loans of between £1 million and £10 million to SaaS companies with a proven business model, at all stages of the business lifecycle – be they pre-profit, breaking even, or profitable. We can invest early in the company’s lifecycle – provided monthly recurring revenue is at least £100,000 – and look for a clear path to the company being able to service the debt. This can be a clear path to breaking-even or to an equity raise. In all cases, a cash runway of at least 12 to 18 months is preferable. With a third of our portfolio SaaS companies, we believe so firmly in the SaaS business model – and have so much experience investing in SaaS companies – that we can offer a term sheet within just one week of the first meeting.

You take the lead – Be not afraid of greatness

We know that equity dilution and loss of control is most painful for SaaS businesses implementing their vision and building their equity value rapidly. That’s why we provide individually designed financing solutions that support growth, without requiring equity dilution or managerial involvement in the form of board seats. We invest in companies we believe in – if we didn’t think you could lead your company through the scale-up phase, we wouldn’t invest in you.

BOOST&Co Limited is registered in England, company number 07728296. Its principal place of business is 4th Floor, 15 Crinan Street, London, N1 9SQ and its registered address is Cheltenham House, Clarence Street, Cheltenham, GL50 3JR. BOOST&Co Limited is authorised and regulated by the Financial Conduct Authority. It is included in the FCA register and its registration number is 711918.